The GDP's third-quarter jump of 3.5%  isn't a fluke. I'm expecting this growth spurt to extend into the fourth quarter in the same 3% to 4% range, driven by continued increases in auto production, inventory restocking, stimulus spending, and higher exports. The naysayers' chorus has tempered its tune somewhat, but the recovery's chief skeptics aren't ready to throw in the towel just yet. Their new mantra is that the economy's seemingly effervescent third-quarter robustness is nothing more than a fleeting mirage, a shallow side-effect of government-induced smoke-and-mirrors therapy such as the Cash for Clunkers program. When those programs end, they preach, we will surely fall back into the abyss. I say not.

The bear argument is that any improvement we've seen is the outgrowth of large government programs and a willing Federal Reserve. While the programs have provided a substantial psychological lift, they haven't added that much to economic growth. Auto sales slumped back after the Cash for Clunkers program ended, but demand remained above the early 2009 trough even during September. October is likely to be substantially better than the Cash for Clunkers-afflicted September period based on weekly sales reports. Furthermore, it is auto production, not retail sales, that drives economic growth. Production has substantially lagged sales for most of this year, and I expect auto production to show new life again in the fourth quarter. Auto production has shown meaningful improvement for most of the year.

On the housing front, the $8,000 home buyers credit helped, but many of the buyers would have bought their houses even without it. The big stimulus bill has yet to set the world on fire. A lot of the stimulus infrastructure spending has yet to occur, and some of that may just replace cash that would normally be spent by the state governments. Low rates from the Fed have certainly given a boost to housing affordability, but factors other than the price of credit have kept a lid on housing demand, especially at the higher end of the market. Instead of low rates generating strong demand for interest rate-sensitive sectors such as housing and autos, it appears a lot of the extra Fed cash found its way into the financial and commodity markets.

The 3.5% increase in GDP was impressive. It marks the first time in the past four quarters that GDP has swung to the plus column. Even more remarkable was the breadth of the improvement. Consumer spending was up, exports were up, autos were up, federal spending was up, and even residential housing was up. The imports number, due to increased auto imports resulting from the Cash for Clunkers program, was the sole large detractor to quarterly GDP growth. Business investment (a huge negative in past quarters), and state and local government spending both had very modest negative impacts on the quarter. Increases in consumer spending, about a third of which was auto related, and a slower drawdown in inventories (as manufacturers stepped up production) were by far the largest contributors to the quarterly results.